The Murdoch Thiefdom....

Am I being blagged, hacked or tapped? First, there is Peter Oborne’s piece about the Fourth Reich, a term that I coined years ago. And checking back on old posts there have been several that have been followed later in the meeja. In one of my posts a couple of weeks ago, I made mention of the doorstepping of a Red Top Editor by another hack, which he didn’t like one little bit. A reader reminded me that the editor in question was none other than Kelvin Mackenzie, the awesome boss of the Sun at that time. Now I read in the excellent Oldie magazine a piece on the very same topic by John Sweeney. It was he who did the door-stepping.

It’s a funny old world. About a year ago we heard a lot of ordure from St Vince Cable and others about tax-havens. Then it all went quiet. Maybe this was because they read my blog putting the record straight (‘Tax havens galore’), but there could be another reason.

Could it be that word went out from Murdoch Towers?

News Corpse is based not in New York or Washington, as one might expect, but in that great tax haven, the state of Delaware. One benefit to the Dirty Digger is that it has paid little or no UK corporation tax on huge UK profits over a good many years. Its overall tax rate was about 6% in 1999, according to the Economist.  It has over 150 subsidiaries in either tax havens or countries where there is a favourable tax regime, with companies in Luxembourg, the Netherlands (where the egregious Bono has also stashed his wedge), Switzerland, Gibraltar, Cayman, the Virgin Island, Panama, Singapore, Hong Kong and Mauritius.

They are in good company.

It is reported that in 2008, 83 of the 100 largest US corporations had subsidiaries in tax havens. No less than 99 out of 100 of the largest European companies have off-shore subsidiaries. The NAO reported in 2007 that 30% of the UK’s biggest businesses paid no tax at all in the previous year. ENRON had 881 off-shore subsidiaries, much good it did them. CITIGROUP has 427. Bernie Madoff, Lehman Brothers and AIG were also thoroughly entrenched off-shore.

So where are the biggest tax havens? Not in some exotic palm-fringed tropical paradise, but in Manhattan and the City. And don’t imagine that there is a bank in the Caribbean with its strong room stuffed with money. Deposits are recycled back to e.g. the City immediately which is how Alistair Darling was able to purloin £830 million of Manx deposits on the crash of KSF, the Icelandic bank.  The Cayman Islands holds nearly USD 2 trillion of deposits, three-quarters of the world’s hedge funds, and 80,000 companies. But they are mostly just brass plates.

Here is how it all works.

If you want to hide your stash from your soon-to-be-divorced wife, you set up a secret front company. How? Well, just look at the small ads in your In-flight magazine or finance journal. There will be advertisers who will set one up for you at modest cost and not even check your identity. This means that what they don’t know they can’t reveal! Most of these firms are not in so-called ‘tax havens’ but in the US, Europe and the UK. Better still, issue bearer shares. (Now here’s a funny thing; these are illegal in the tax haven of the Isle of Man but not in England).

But if you are a multi-national, like News Corp, it gets more interesting.

Let us suppose that our business is cocoa production in Ghana. This is set up as a separate company from our parent which is based in London. We also have a financial services company based in Panama. So all the profit is generated in Ghana. But the Panama end lends it money and charges  interest at least equal to the profit. This is transferred back to Panama (or to another tax-haven if you really want to get complicated). So all the profit is filtered out to a no-tax regime. The Ghanaian tax people get nothing because there is no tax liability. The UK taxman ditto. Basically, you shift profits to   a low- or no-tax regime and the costs to a high tax country where they can be set against tax.

It is estimated that the tax loss on the deposits of wealthy individuals is about two-and-a-half times the total of global aid money. But individual deposits pale into insignificance compared with those of multi-nationals.

So now you know why capital flight from Africa exceeds foreign aid, which, of course could be abolished if ‘off-shore’ was likewise.